Tuesday, January 20, 2015

A recent report by Credit Suisse Research
Institute examines the changes in global household wealth over the past
year. Here is a brief summary with an emphasis on the statistics for the
United States as well as a brief look at how poverty levels and the distribution of income have changed in the U.S. over the past four decades. Please note that all currency amounts are in United States
dollars and that net worth or wealth is defined as the value of
financial assets plus real assets (i.e. real estate) minus household debt.

Global wealth per adult
increased to $56,000, up by $3450 over the year. Total global household
wealth increased by 8.3 percent to $263 trillion with global wealth now 39
percent above its 2008 low and 20 percent above its pre-Great Recession peak.
Credit Suisse estimates that aggregate global wealth is likely to rise by
nearly 40 percent over the next five years, hitting $369 million in 2019.
Aggregate global wealth has more than doubled since 2000, with financial
wealth making up 54 percent of total wealth, up from a low of 49 percent in
2008 with the drop being largely due to collapsing real estate prices.

Now, let's focus on the
United States. U.S. total wealth rose by $8.9 trillion from mid-2013 to
mid-2014 and is expected to reach $114 trillion by 2019. In 2014, the United States remained the leader among all nations in terms of aggregate wealth.

As shown in this chart,
the United States comes in fourth place globally when it comes to average
wealth per adult:

However, when you look at
median wealth (the midpoint between the richest and poorest), the United States
does not even make the top ten list:

Data on the globe's
millionaire peer group shows that the number of millionaires has risen to 34.8
million individuals, up 164 percent since 2000. With 14.166 million
millionaires, the United States currently has 41 percent of global
millionaires. While the number of American millionaires is expected to
rise to 19.705 million in 2019, America's share of global millionaires is
expected to fall as the number of millionaires in the developing economies of
the world rises.

When we look at the
statistics for ultra-high net worth individuals (UHNW) who have net assets in
excess of $50 million, there are now 128,220 ultra-wealthy individuals in the
world, up from 41,000 in 2000. Of these, 45,000 are worth at least $100
million, up from 14,000 in 2000 and 4,300 have assets in excess of $500 million
compared to 1,200 in 2000.

The United States has the
vast majority of the UHNW individuals as shown on this chart:

Most of you will have heard of the Gini coefficient. For those who haven't, the Gini coefficient is a number between zero and one that
measures the wealth distribution of a nation or group of people. When the
Gini coefficient is zero, wealth distribution is perfect, that is, all people
have the same level of wealth. When the Gini coefficient is 1, one single
person controls all of the wealth. Basically, as the Gini coefficient
rises, wealth inequality rises.

Here is a graph showing what happened to the
U.S. Gini measuring money income (i.e. cash incomes received on a regular basis
before income tax payments but including income transfers such as social
security) between 1967 and 2011:

It is quite obvious that
there has been a significant increase in money income inequality in the United
States over the past four decades.

In contrast, from the Congressional
Research Service, here is a graph showing the trends in the poverty
rate (in green) and number of poor persons (in red) in America between 1959 and
2013:

Here is a graph showing
the poverty rate by age group from 1959 to 2013:

It is quite clear that
there is a growing disparity in the United States between the wealthy
(particularly the ultra-wealthy) and the majority of Americans, particularly
the poorest among us. Stanford's National Report Card on poverty and
inequality states that the Gini coefficient for 2010 is higher than any
level measured in nearly three decades. In 2012, the lowest income
quintile (those who are in the bottom 20 percent of earners) earned only 3.4
percent of total income, down from 3.8 percent in 2007. As we can see on
this graph, the share of income among all but the top quintile has dropped or
remained level since 1968:

Between 2007 and 2010,
the share of income received by the bottom three quintiles (bottom 60 percent of earners) dropped by at least
10 percent and reached all-time lows.

While the Great Recession had a
significant impact on income share among the bottom 60 percent of income earners,
it just reaffirmed a trend that had been in place for decades. When
combined with skyrocketing executive compensation levels, the dropping share of
income for the majority of Americans is responsible for the growing economic disparity
in our society.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.